Reader Peter N. asks a question that's on the minds of a lot of upper-income people these days.

"When we discuss President Obama raising taxes on 'incomes of $200,000 for singles or $250,000 for couples,' are we talking about gross income, adjusted gross income or taxable income? There are huge differences in these terms. Could you please clarify?"

The answer: It depends on which tax increase you are talking about. Some would start at taxable income just below those limits, while others would start at adjusted gross income slightly above those limits.

Obama uses those numbers as shorthand for what is a complex calculation. I will attempt to clarify, but first this quick refresher course:

-- Gross income refers to income from all sources (including taxable investments) before any deductions, credits or exemptions have been subtracted. It shows up as "total income" in the middle of the first page of your 1040 tax return.

-- Adjusted gross income is total income minus certain deductions, such as classroom expenses for teachers, moving expenses, individual retirement account contributions, student loan interest and college tuition. It shows up at the bottom of the first page of Form 1040 and the top of the second page.

-- Taxable income is adjusted gross income minus your standard or itemized deductions and the personal exemptions you get for yourself, spouse and dependents. It's the number you use to calculate your regular tax.

When he was campaigning in 2008, Obama promised not to raise taxes on people making less than $200,000/single or $250,000/married filing jointly. He was usually referring to adjusted gross income.

Adjusted for inflation, those numbers now stand at roughly $214,000/single and $267,000/married (give or take, depending on how you measure inflation). Although the administration now uses those inflation-adjusted numbers in tax calculations, Obama continues to use $200,000 and $250,000 in his speeches.

At the end of this year, a slew of Bush-era tax cuts are set to expire. Obama wants to retain them only for people below those income limits, letting them rise for people above.

Marginal tax rates

The one people worry about most is an increase in marginal tax rates. It would apply to taxable income that exceeds roughly $246,000/married or $204,000/single. (To arrive at this number, take Obama's inflation-adjusted numbers on adjusted gross income, and subtract the appropriate standard deduction for 2013 and two personal exemptions for couples and one for singles.)

Because taxable income is smaller than adjusted gross income, your AGI could be considerably higher than those amounts and you would not be subject to an increase in marginal rates, especially if you have a lot of itemized deductions.

A married couple "could have $300,000 in AGI, but have itemized deductions of $60,000. That plus your personal exemptions (about $3,900 each in 2013) could bring your taxable income below $240,000 and you are not subjected" to higher tax rates, says Roberton Williams, a senior fellow with the Tax Policy Center.

Even if you are subject to higher rates, remember they will apply to some of your income, not all of it.

Think of our tax system as a layer cake, with each layer representing a certain amount of income. The more money you make, the more layers you pile on. Each layer is taxed at a successively higher rate. The top rate is your marginal rate and applies only to your top layer of income. Lower layers are taxed at lower rates.

In 2012, the tax rates are 10, 15, 25, 28, 33 and 35 percent.

If the Bush tax cuts expire, the rates will rise to 15, 28, 31, 36 and 39.6 percent.

The 33 percent tax bracket (or cake layer) would be split in two - the lower half would still be taxed at 33 percent, the upper half at 36 percent.

For couples, taxable income between roughly $223,500 and $246,000 would be taxed at 33 percent, while income between $246,000 and $398,350 would be taxed at 36 percent, according to George Jones, a managing editor of Federal Tax Developments, a CCH publication.

Singles would pay 33 percent on taxable income between $183,200 and roughly $204,000 and 36 percent on income from $204,000 to $398,350, according to a report by the Tax Foundation.

For singles and couples alike, the top tax bracket would start around $398,350 in taxable income, a little above where it starts in 2012. But the tax rate on all income above that limit would rise to 39.6 percent from 35 percent.

Pease and PEP

Obama would also bring back two so-called stealth taxes that hit higher-income people until they were gradually eliminated during the Bush years. One, called the Pease limitation, takes away up to 80 percent of their itemized deductions. The other, called the Personal Exemption Phaseout, or PEP, takes away up to 100 percent of their personal exemptions.

Under Obama's plan, these provisions would come back for people who have more than $200,000/$250,000 in adjusted gross income, adjusted for inflation since 2009.

Obama would also let the rate on capital gains and dividends rise for people above this limit. How it would work in practice is complicated. Nick Kasprak of the Tax Foundation explains it in a blog post at tinyurl.com/aj4zhnz.

These potential tax increases would come on top of new Medicare taxes that will hit higher-income people starting next year. These increases were approved as part of the Affordable Care Act (Obamacare).

Singles with more than $200,000 in earned income (from a job or self-employment) and joint filers with more than $250,000 will pay an extra 0.9 percent on earned income that exceeds those limits.

Also, singles with more than $200,000 in adjusted gross income (which will not be adjusted for inflation) and joint filers with more than $250,000 will pay a 3.8 percent Medicare tax on their investment income, but only up to the difference between their AGI and those income limits.